DO #1

11. Mary Chocolatier -' Mary Chocolatier (Mary) was founded in 1919, in Brussels, Belgium, and x 73 produces ne chocolates. Mary's mixing department produces the base \" ' ' ' , chocolate, some of which is sold to other hi gh-end chocolatiers, and some j\\/1 {\\ R' of which is passed on to Mary's nishing department, which produces the chocolates sold in Mary's retail outlet and online. . At the start of Augustl, Mary has no inventory anywhere in its factory because the factory was shut down for two weeks in late July and early August for maintenance. Mixing Department: During August, 500 kilograms of chocolate was started in the mixing department, 375 kilograms of which were completed and transferred out of the mixing department. Two hundred twentyve of the completed kilograms were sold to other chocolatiers, and the other 150 completed kilograms were transferred into the nishing department. The ending work-in- process in the mixing department is 60% complete, on average. Finishing Department: Each kilogram of base chocolate transferred in from the mixing department can be turned into two boxes of retail chocolate. During August, 280 boxes were completed and sold. No boxes were held in nished goods inventory at the end of the month, The ending workin- process in the nishing department is 50% complete, on average. There are three types of costs at Mary's which are included in Cost of Goods Sold. Note that Mary's uses normal costing to assign costs to the two departments, but then allocates costs within each department based on actual unit volume using actual costing. Raw Materials: All raw materials are added to the mixing department, there are no raw materials in the nishing department. Labor: Labor is a direct cost to each department. Manufacturing Overhead: Manufacturing overhead is indirect to the two departments. Mary allocates these costs to the two departments using a pre-determined (normal) overhead rate based on direct labor euros. Any over- or under-applied overhead is charged directly to cost of goods sold at the end of each month, Raw materials are allocated at the start of the mixing process, while conversion costs (i.e., labor and overhead) are added continuously during the production process in each department. Costs for the month of August are as follows: Budgeted Actual Raw Materials mixing department 7,000 6,000 Labor mixing department 5,000 4,500 Labor nishing department 15,000 14,500 Manufacturing Overhead 12,000 7,600 Total Cost 39,000 32,600 1. What are the total costs allocated to the mixing department for the month? (10 points) 2. What is the per kilogram cost of goods sold for the base chocolate sold to independent chocalatiers by the mixing department? (10 points) 3. What is the per box cost for the retail chocolates remaining in the nishing department's inventory at August 31? (15 points) 4. If bulk chocolate sells for E25 per kilogram and the retail chocolate sells for E125 per box, what was gross income (defined as revenues less cost of goods sold) for the month? (15 points) Mary's finishing department actually consists of two processes. First, highly trained craftsmen decorate the chocolates with designs and colors. Afterwards, the chocolates are dried and hardened (this second process is almost entirely automated, and is exactly the same for each chocolate) Decorating and drying occur only in the finishing department, and not in the mixing department. Assume that the costs and volumes of the decorating and drying parts of the finishing department are fairly constant from month to month The owner's nephew, just back from getting an American MBA, has suggested breaking the finishing department into two departments (decorating and drying), for purposes of cost accounting. . Assume that the cost of the decoration varies significantly among the different types of chocolates that Mary sells. Under this assumption, what effect (if any) does the current cost system have on each of the following? For each, circle one of the three choices (10 points) Total cost of goods sold Understate No distortion Overstate Total cost of bulk chocolates Understate No distortion Overstate Total cost of retail chocolates Understate No distortion Overstate Cost of retail chocolates which Understate No distortion Overstate require a lot of decoration Cost of retail chocolates which require little decoration Understate No distortion Overstate No distortion means the cost per unit from the existing cost system is approximately correct. Understate (Overstate) means the cost per unit from the existing cost system is LOWER (HIGHER) than the actual cost per unit